Ag shippers fear dock labor stoppage, surcharges

Wednesday, September 12, 2012

A prominent trade organization for the agriculture and forest product industry said U.S. exporters are “extremely worried of massive economic loss” in the event of a shutdown of U.S. East and Gulf coast ports if longshoremen and their employers can't agree to a new contract to replace the current labor pact which expires on Sept. 30.
“The impact is already being felt in locations far from the coastal seaports,” said the Agriculture Transportation Coalition (AgTC).
It complained freight rate surcharges, as high as $1,000 per container, that many carriers have said they would impose if there is a port disruption would “increase the cost of transportation to the extent that foreign customers could not afford U.S. agriculture products, and will turn to sources in other countries.” AgTC said some of the surcharges would double total freight rates for its members.
The Federal Maritime Commission is slated to discuss surcharges during the closed portion of its regular meeting this afternoon.
“The prospect that these surcharges will be imposed, are already causing agriculture producers to slow production if they can, to hold back on export commitments. So the economic injury has already begun, even before the current East and Gulf coast longshore labor contract expires on September 30,” AgTC said.
The group said a lockout of dockworkers on the West Coast a decade ago resulted in “billions of dollars of economic loss, cargoes destroyed as refrigerated ocean containers sat at the docks unplugged, as perishable food rotted, as foreign customers exercised their rights to cancel purchases of products that could not be delivered by the committed deadlines, as financing instruments expired before the cargo could begin transit, as supply chains for ag exports backed up all the way to heartland states, where dairy, beef, pork, even sunflower seed and grain production and delivery were disrupted and shut down.
“It took several months to get the export production and supply chain fully restored," AgTC noted. "Yet the injury from that West Coast port shutdown has been felt for years since. For instance, when confectioners in Japan could not get the superior California nuts and raisins, they were forced to substitute from Turkey and elsewhere. And once the customer finds another source, it can be very reluctant to return to the source which could not deliver.”
AgTC urges the "administration and its Federal Mediation and Conciliation Service to do all in its authority to bring the parties together, to either resolve differences quickly so the prospect of a strike or port closure is eliminated, or to gain an agreement to continue working, while negotiations continue,” said Peter Friedmann, the group's executive director.
At the same time, Friedmann told American Shipper in an interview last week that his members "do not want to push parties to resolve negotiations in a manner that will deny us productivity for the next 10 years." He said there is a need for advance automation, efficiency and productivity at U.S. ports to the level of European, Latin American, and Asian ports that the competitors of U.S. agricultural shippers use.
But he noted Tuesday in a press release “this is harvest season for much of our agriculture destined for foreign markets. Failure to keep the ports operating at full capacity this fall will have devastating impact on agriculture and thus the entire economy.”
Teresa Pittillo, who owns Poseidon Forwarding in Roswell, Ga., with her husband, said some shippers are racing to move increased quantities of food before the contract between the International Longshoremen’s Association and U.S. Maritime Alliance (USMX) expires. Her company specializes in the movement of refrigerated foods such as poultry, beef and pork and has seen about a 25 percent increase in shipments in
recent weeks.
She noted refrigerated food exports are seasonal, peaking in September and October, and a port shutdown at the end of this month would be particularly disruptive.
Richard Cope, president of USA Cargo, a forwarder based in Marietta, Ga., that moves large quantities of agricultural commodities, said since late August he has also seen a rush by shippers to move cargo sooner, with volumes up about 15 percent. He said some shippers located in places such as Arkansas, which have a choice between moving Far East cargo through the Gulf or West Coast ports, have opted to move cargo through the West Coast.
AgTC members said excessive carrier strike-based surcharges would make their products uncompetitive.
They said a $1000 per container fee equates to more than a $40 per metric ton “tax” on exports for commodities such as pulp and paper and such products typically make less than $40 per metric ton in profit.
Friedmann noted during the lockout of dockworkers on the West Coast a decade ago, most carriers declared force majeure.
He contended “if a carrier files notice of and imposes a surcharge in the case of that condition happening, it would suggest that the carrier is intending to comply with all other requirements of his carriage obligation.
"It seems to me if they are going to impose the surcharge they would not be able to impose force majeure or vice versa, if they declare force majeure they could not impose the surcharge. That is a question we are posing to the FMC," Friedmann said.
FMC Chairman Richard Lidinsky said "I don't want to deal in hypotheticals. It is up to each individual carrier in how they want to approach it."
But he added he was not aware of any rule that would exclude a carrier from being able to impose force majeure if they are imposing a surcharge.
Ashley Craig, an attorney with the Venable law firm, said the surcharges appear to reflect a carrier industry business decision since they would be faced with increased costs of handling cargo all over the country if there is a strike by longshoremen on the East and Gulf coasts.
"It's going to affect everyone, even if you are a West Coast shipper and don't move anything through East Coast ports, you are going to be hit indirectly. The collateral damage is going to be congestion, delays and costs associated with carrier operations," Craig said.
"It doesn't mean they have to apply it, they can always wave it if they want to under contract or other agreement," he said.
"If the ports are down, carriers, being good corporate citizens will attempt to move shipments to their destination, somehow, someway. But they also realize that is going to be pretty complicated. So if they have to invoke force majeure under their bill of lading, that is what they are going to do first and foremost, but also their service contract. That will give them an out for non-performance or if they can't reroute or find an alternative service to move the cargo to the destination point," Craig explained.
Vincent DeOrchis, a New York-based attorney with the law firm Montgomery McCracken, said in addition to force majeure, carriers have a right to terminate a voyage because of circumstances which prevent them from completing a voyage.
"That right is reflected both in most bills of lading and in the law," he said.
A shipper may be able to argue that a surcharge implies a carrier will perform even during a short-lived strike, "but if a strike continues to go on and on and on, it is a question of what the parties have bargained for... What if it goes on for a month?"
If a long strike results in losses or damages carriers are also protected by the Carriage of Goods at Sea Act which says in one part "Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from...
Strikes or lockouts or stoppage or restraint of
labor from whatever cause, whether partial or general: Provided, That
nothing herein contained shall be construed to relieve a carrier from
responsibility for the carrier’s own acts." "In the past when there have been strikes both on the East Coast as well as the West Coast the carriers, depending on the length of the strike and so forth, have been put into a situation where they generally have to declare the voyage at an end to their customers. They discharge the cargo and tell the customers that 'it is your responsibility, your risk, and your expense to move the cargo from wherever it has been discharged' - usually in some foreign port near the U.S. onto its intended destination," DeOrchis said.
He said a decade ago, when U.S. West Coast ports were shutdown, boxes were discharged in Mexico and Canada and shippers were told to come and get their cargo.
"In this day and age, carriers do not want to abandon their customers, they do want to see the cargo delivered, they don't want to lose their market share. On the other side of the coin, carriers don't know how long the strike is going to be, how severe it is going to be, and there is a limit to storage space in ports outside, but close to the U.S. and this creates a problem," he said.
DeOrchis said the extra surcharge may help pay for the additional cosst of handing cargo - storing containers, unloading them in a foreign port, then reloading them onto a feeder ship in the event of a strike, but that shippers still might be hit with additional bills to get cargo eventually delivered.
"It all depends on how long the strike is going to last," he said.
Carriers may also need to discharge cargo to fulfill obligations to shippers in other parts of the world. A ship bound for the United States may discharge cargo in a foreign port because it has a contract to pick up cargo in Latin America or Europe.
DeOrchis also noted shippers are also equally aware that labor negotiations are underway and there is the possibility of a strike on Sept. 30.
"This is more or less a level playing field," he said. "This is not a situation where a shipper can say, 'Gee, I did not know this was going to happen, this was a complete surprise to me... Why did you discharge it in someplace other than New York?' Both sides are taking a gamble." - Chris Dupin